A little confused about taxing a back door Roth
A little confused about taxing a back door Roth
Questions:
- If a client opens a BD Roth (traditional IRA but no tax deduction) with 8k (over 50) for 2024 right now and then converts that 8k to a Roth prior to 12-31-25, does the 5yr time clock go back to 1-1-2025?
- Can he open one for his wife too?
- If there are no earnings on the BD Roth then there would be no taxes on the conversion, correct?
- But if there are earnings while sitting in the BD Trad-IRA, then when it is converted to the Roth IRA, they would pay taxes on the earnings only, correct?
- Are there any other pro-rated taxes on the BD Roth?
- Did the SECURE ACT get rid of this BD Roth option?
Thank you.
Douglas
Permalink Submitted by Alan - IRA critic on Thu, 2025-10-16 14:36
Q 1 – yes, back to 1/1/2025. However, a non taxable conversion (which assumes no other IRA balance), can be distributed from the Roth without the 10% penalty. The penalty only applies to taxable conversions.
Q2 – yes, using a spousal contribution if she does not work. But her conversion would only be tax free if she also does not have other IRA balances.
Q3 – Correct. That’s why the conversion should be done right after the contribution so that any gains will be in the Roth IRA.
Q 4- Correct. This is all calculated on Form 8606.
Q 5 – Only if there are other pre tax IRA balances.
Q6 – No, this was not addressed in the Secure Acts.